tv Nightly Business Report PBS May 10, 2012 7:00pm-7:30pm EDT
>> this is n.b.r. >> tom: i'm tom hudson. susie is off tonight. a late day warning from j.p. morgan chase-- it sees big trading losses ahead. then, we talk europe, warren buffett, and long-term investing with growth investor robert hagstrom. and in tonight's "made in america," we meet barrango, a u.s. company shipping holiday spirit worldwide. that and more tonight on n.b.r. we begin with j.p. morgan chase. throughout the financial crisis, it had a reputation as a bank with a fortress balance sheet. today in a regulatory filing, the firm admitted it has seen "significant mark to market losses" in complex financial derivatives.
"mark to market" means, if the assets were priced at what they are worth today. the bank said its strategy to hedge its credit portfolio has proven to be "riskier, more volatile and less effective as an economic hedge" than it believed. $2 billion in losses in the first six weeks of this quarter. about $1 billion of that was made up by selling some positions. the news sent j.p. morgan shares tumbling after the closing bell. the stock closed at $40.74 per share in the regular session. but after the filing, shares fell almost 7%, falling below $38 per share. on a conference call late today, c.e.o. jamie dimon said the situation violated the bank's own standards and principles, and they're disclosing the problem now because it could get worse through the end of the year. >> reporter: i'm erica miller in new york. coming up, i'll tell you about new proposed regulations that could make it easier to compare mortgages.
"nightly business report" is brought to you by: captioning sponsored by wpbt >> tom: blue chip stocks closed higher ahead of that j.p. morgan news, thanks to another drop in new claims for jobless benefits. first-time unemployment insurance filings fell by 1,000 in the past week to 367,000. as for stocks, the dow rose 20, the nasdaq lost a point, and the s&p added three. uncle sam is in the black for the month of april. it's the first month in three and a half years the federal government has brought in more money than it spent. the government collected almost $319 billion in taxes and other revenues.
bills totaled almost $260 billion, leaving a surplus of just over $59 billion. it helps that most americans pay their taxes in april, and tax receipts have been stronger this year compared to last year. one month in the green doesn't do much, though, to address the much larger debt issue. the government is on pace to bump up against the $16.4 trillion debt ceiling before the end of the year, meaning congress and president obama will have to okay more borrowing or face default right after the election. and that is why congress was revisiting last summer's debt ceiling deal today. republicans in the house of representatives pushed through a plan this afternoon to protect defense spending from $500 billion in automatic cuts required by that debt deal. house republicans want to replace defense cuts with reductions in spending on food stamps and health care. to no one's surprise, the white house is promising a veto. senate democrats say they want to replace spending cuts with tax increases.
the next big bank failure could put the company in the hands of government regulators, and shareholders on the hook for losses. that's part of a plan the acting chairman of the federal deposit insurance corporation laid out today. diane eastabrook has more. >> reporter: acting fdic chairman martin gruenberg told bankers in chicago the "big bank" strategy aims to help stabilize the nation's financial system, while preserving a failing bank's healthy subsidiaries. gruenberg says the fdic would operate a bridge holding company for those stable operations and spin it off later to a private firm. >> this would allow subsidiaries that are equity solvent and contribute to the franchise value of the firm to remain open and avoid the disruption that would likely accompany the closings. >> reporter: government regulators say the lehman brothers bankruptcy in 2008 triggered the banking crisis that led to the great recession.
the dodd-frank act gave the fdic new authorities to resolve so-called systemically important financial institutions. gruenberg says that authority will help them reach across borders. >> when you are dealing with one of these large systemic companies they have extensive international operations, so you have to work with the foreign supervisors of the foreign operations of these firms, in addition to the domestic regulators. >> reporter: the plan also requires financial institutions to write a living will that will help them prepare for a potential bankruptcy. diane eastabrook, "nightly business report," chicago.
>> tom: shares of avon losing some ground today, despite word that cosmetics maker coty is raising it's bid for the company, with a little help from warren buffett's berkshire hathaway. coty upped its bid for the door- to-door seller of cosmetics to $10.7 billion, or $24.75 per avon share. that's up 6.5% from its previous offer. and with warren buffett's berkshire hathaway throwing as much as $2.5 billion behind the deal, some analysts think avon needs to say yes now. >> $10.7 billion is a great price for avon. shareholders may not agree and may want to hold out for more, but i don't know that someone is going to come in with a higher price. >> tom: late today, both moody's and fitch ratings took negative action on avon-- moody's lowered its rating on a-v-p; fitch put it on negative watch. both firms see uncertainties surrounding a potential deal. warren buffett preaches invest in solid businesses and invest for the long-run. robert hagstrom is the portfolio
manager of the legg mason growth trust mutual fund. he has written books about buffett's investment style, and his fund owns berkshire hathaway stock. so robert, is this the right kind of deal for warren buffett? >> well, it is the type of company that you could see warren buffett buying. predictable, in the consumer products area that he has had a lot of experience in, a lot of investing in. i think it speaks volumes about the attractiveness of avon but it may speak, tom, even greater volumes about warren's confidence in koddy management. >> tom: talk to us here about this type of guil, the strategy. buffett working to provide a portion of the financing, a lender, essentially. is that a long-term strategy, do you think, as opposed to just outright providing equity? >> well, we saw this with the march family when they were looking to take out wrigley which they did in 2008. warren was a lend never that transaction, and has made out very well with preferred stock and others. he gets very good terms as we well know. i think given the choice he might like to only entire company, but in this case he gets koddy management, koddy
cosmetics. their management team to probably help turn around avon which has been struggling lately. >> tom: you've written a lot about what smaller investors can learn from buffett's style. what about being a lender for small investors. how do today's low interest rates impact these long-term horizons that buffett preaches about? >> it's very difficult, tom. it's very difficult, if you are in the bond market, the cd market. all investors that are depending upon some level of income from the fixed income market are struggling right now. what we've been trying to preach is to try to take a little bit of that fixed income money, conservatively move it to the stock market and these blue-chip stocks and have 3% solid dividends, johnson & johnson which we own, good solid high quality companies, minnesota mining, coca-cola, you can go down the list. great businesses that have good dividends of 2, 3% and are growing every year could give you a hedge from some of that income that you are lossing with interest rates become so low. >> but robert you know there are long-term investors out there that remember 2008 and 2009 and say conservative and stocks do not go
together any more. what do you tell them? >> well, it has taken longer, toming for people to psychologically recover from the 2008. if you go back to 2000 to 2002, had a very difficult market. three years in a row, negative returns in the market. in 2003 everybody came back and invested in the stock market. 2008 a different story. we had a very bad market in 2008. still almost five years later, tom, people are skeptical, suspicious. they are having a difficult time reembracing the stock market. but there are good bargains out there as we well know. >> tom: lots of skeptism lately has surrounded headline risk out of europe. and we know the european problems didn't happen overnight. we have been told by regulators and other experts it's going to take a long time for europe to get out of this problem. when investors are looking at long-term horizon, doesn't that cause for pause here at this point when are you looking at a big economic engine of the global economy taking a long time to dig itself out of a hole. >> well, it does, tom. and i guess it's harder for me to think about what can happen over the next 12 months and what is going on.
but remember what warren said at the berkshire meeting. he said i'm investing for five to ten years. so it tells me that what is going on in europe is not clouding warren's judgement about investing for the next five to ten years. the next five to ten months, that's a different story. >> tom: with that in mind you mention some of the blue chips with dividend names. how else are you approaching this market and just know wag we reported at the top of this program, the trading losses that is going to hit the market tomorrow with jpmorgan? >> well, we don't have a big plug of financials. we do have financials in the portfolio and it speaks to the kblexity that lenders and other big banks have in this derivative market. they are very complex instruments. at time these are unpredictable in how they behave. and today we are seeing in spades, you know, the jpmorgan and di pond being tested. but the way we are playing with multinationals, let me give you a good fact. 15% of our gross domestic product comes from the export business which is growing anywhere from 6 to 10%. if you do the back of the envelope, half of our gdp
growth this year is coming from the export business. if you believe in global cote in-- growth in the emerging market, the bricks and the rest, go for the multinationals. many really s&p stocks, many of those we were talking about earlier. >> tom: do you own those in your fund. >> we do, almost half the rev if yous are am coulding from revenues outside the united states. >> tom: the long view, robert hagstrom with us tonight from legg mason. >> tom: just when you thought they couldn't possibly fall any further, mortgage rates dip to a new record low. homebuyers can thank europe's
recent elections and america's weakening economy. those factors have led to a flight to quality into u.s. government bonds, pushing down mortgage rates. suzanne pratt reports. >> reporter: at apple mortgage, business has been getting juicier. it's no wonder, with mortgage rates at an appetizing all-time lows. the 30-year fixed currently averages 3.83%. last year, that same loan was 4.63%. broker gary leib says 75% of his calls are for refinancings. >> i get a lot of joy out of helping people refinance. honestly, it's a beautiful thing helping people save so much money. >> reporter: super low mortgage rates haven't done much to lift home sales out of the cellar. since december, rates have been below 4%. still, sales of new and old homes fell in march. the problem is it's gotten much harder for would-be homebuyers to qualify, and for mortgages to get done. >> each loan require five times the amount of work.
the banks are very difficult. every "i" has to be dotted and every "t" crossed. >> reporter: and thanks to europe's financial mess, mortgage rates, which are tied to our ten-year bond, are expected to remain attractive. >> americans can expect a very low interest rate environment through 2012, into 2013 and perhaps even beyond. >> reporter: if you're wondering if it makes sense to refinance, consider this-- every 1% drop in your rate means $700 a year saved on every $100,000 you borrow. suzanne pratt, "nightly business report," new york. >> tom: the new consumer finance protection bureau wants to make closing costs for future mortgages easier to understand. erika miller has the details. >> reporter: the biggest change the bureau is proposing is banning origination points that vary with the size of the loan. those are the fees that every mortgage borrower pays to get a loan-- the higher the loan, the more you pay.
instead, the consumer financial protection bureau wants to only allow lenders to charge a flat rate for making loans. the reason is simple-- origination points are easily confused with discount points. those are the up-front fees that lower a borrower's interest rate. but there could also be changes to those discount points. the agency wants to require that if borrowers pay points, they would get a minimum reduction in their mortgage rate. lenders would also have to offer loans without points to make it easier to compare options. the proposals won't help anyone buying a home this year. the cfpb plans to formally propose new regulations this summer and finalize them by next january. erika miller, "nightly business report," new york. energy prices continued to weaken today, weighing on chesapeake, as the broad market had a choppy session. but bank stocks could pressure the market tomorrow after the late news about j.p. morgan's trading loss. for the first time in a week, the s&p 500 ended in the green. the session's highest point came
in the first hour of trading, as worries about europe seems to cool down for the moment. volume slipped-- 783 million shares on the big board; nasdaq came in at two billion shares. it was a day made for defensive buying. traditional dividend-paying sectors led the way-- utilities, telecommunications, and health care gained about 1% each. the market is likely to take its tone tomorrow from the banking sector, and it looks to be a sour note. after ending with a small gain, the financial sector exchange traded fund was down 2% in after-hours action. the j.p. morgan admission of trading losses in a specialized credit portfolio rattled the markets. bank of america shed 2.5% in after the bell trading. goldman sachs stock was down almost 3% from this closing price. morgan stanley fell more than 4% in after-hours action. during the regular session, technology was the weakest sector, thanks to the sell-off
in cisco systems after its disappointing outlook last night. it was the biggest percentage loser among the dow, down 10.5%. volume spiked five-fold with the stock falling to its lowest price since october. the computer networking company pointed to uncertainty in europe for its weaker than expected outlook. salesforce.com, the cloud computing software company, fell to a ten-week low, down 9%. after cisco's guidance, there's worry about technology spending by business. and two investment analysts issued separate reports raising caution about its first quarter results out next week. the telecommunication sector may have been stronger today, but not business communications provider wind-stream. earnings were disappointing as revenue fell from a year ago. shares sit at a two-year low, thanks to today's sharp drop, down more than 10%. in addition to its business services, the company also is a rural phone and internet
provider, a service which has seen revenue growth. in our actively traded exchange traded fund market flash, the most actively traded funds ended with small gains, except the nasdaq 100 fund, ending with a small loss. and that's tonight's "market focus." despite an unemployment rate for teenagers three times the national rate, summer jobs for young people are making a comeback. that's according to a report by outplacement firm challenger, gray, and christmas. what's not returning are the
teens who want to apply for them. sylvia hall continues our week- long look at the summer job market. >> reporter: its early may, but 17-year-old william mckinnon's summer job is in full bloom. >> if you could sign for me, right there. >> reporter: it's his second year manning the cash register at this suburban washington plant shop, and he's one of about 150 employees working through the peak spring season. >> i've definitely learned a lot about just being responsible, you know, showing up to work on time every day, you know. >> reporter: but not everyone he knows is making the same commitment. >> a lot of my high school friends, they just don't want a job because they've got so many other things. you know, they're on sports teams or they're doing other stuff like that, they just don't bother looking for one. >> reporter: mary healey does the hiring here-- up to 50 new workers each spring, and high school students make up about half of them. this year, she noticed a 50% drop in applications across the board. and as high school students face growing pressure to volunteer, take summer courses, and keep up with extracurricular activities, some young people who normally
apply just don't have time for a job. >> unfortunately, we do have to turn students away whose... who are unable to make the commitment to work on the days and times that we need them to work. >> reporter: in virginia, the hunt is on for new lifeguards. high sierra pools is scrambling to make 100 new hires by memorial day weekend. right now, high sierra pools hires more international lifeguards than u.s. guards. they want to hire more locally, but are having trouble finding u.s. young people able to make the commitment. >> we have a lot of students that can work only ten-15 hours a week, and we try to accommodate that, of course. but it's just hard on the schedule and hard on the pool. >> reporter: the company offers incentives for young people who work full-time, like discounts on lifeguard certification courses and the chance to get promoted. it's an opportunity 19-year-old chana pentelnik says is worth it. this summer, she's taking on a full-time shift. >> i enjoy doing it, so i'm looking forward to it and i'm looking forward to a safe summer. >> reporter: so, despite the weak job market, work opportunities are out there,
even if fewer teenagers are looking for them. sylvia hall, nbr, washington. >> tom: whether it's internships, volunteering, or working for cash, now is the time for teenagers to find a summer job. here's neale godfrey, c.e.o. of the children's financial network. >> it's not too soon for your teen to start looking for a summer job. what should your teen do? they should research companies that hire teens-- camps, day care, retail stores, restaurants, tennis and swim clubs, libraries, parks, resorts. you get the picture. have your teen look into internships with corporations, who are interviewing now. also, volunteer work is great. help your teen to create a simple resume and a cover letter. work with them to hone their interviewing skills. they should go prepared to each interview with a list of intelligent questions that demonstrate their knowledge of the job and why they are the
perfect candidate. they can search summer job opportunities online, and also visit prospective employers in person. they can also be creative and use their special talents by giving lessons to neighborhood kids. the earlier they start, the more options they'll have. i'm neale godfrey. >> tom: tomorrow on n.b.r., our look at the summer job market continues. we'll take you to one of the nation's top business schools, where finding the perfect summer internship can be more difficult than understanding advanced accounting. and our friday "market monitor" says fear is fogging investors' decisions. duncan richardson with eaton vance will be here. big opportunities in asia have procter and gamble taking a big leap. the company is moving its skin care and cosmetics businesses from its ohio headquarters to singapore. this includes brands like olay lotions, cover-girl make-up, and secret deodorant. the move impacts about 20 employees, and the unit will keep a presence here in the u.s.
in tonight's "made in america," selling the holidays to the world. mike hegedus found a company managing to not only stay competitive against foreign competition, but to thrive, all while making its signature products right here in america. for the barrango corporation, every day is christmas. >> reporter: you wouldn't know it, but what you're watching is american ingenuity on display for the whole world, a blueprint to recovery for u.s. ♪ actually, it's only in guatemala city. ♪ but it was conceived, designed and made in america-- the world's largest christmas tree-- 8,300 branches, over 1.5 million l.e.d. lights, all timed to music driven by computers. housed in a semi-trailer inside
the 57-foot base, a world class tourist attraction worth millions to the central american beer company that paid for it. its logo sits right up there on top. >> basically, think of this christmas tree as the bellagio water fountain up on a christmas tree. we do not keep stock. macys will come in and way we want a bunch of elves, but we don't want them dressed this way. >> reporter: nick barrango is the technology expert at barrango corporation of south san francisco, california, a preeminent player in the $2 billion a year visual merchandising business. >> we make props, decorations, displays for stores, shopping malls, amusement parks any commercial properties. >> reporter: this all started right after the san francisco earthquake. a newly arrived italian immigrant named barrango, a sculptor by trade, started making mannequins, the most
life-like anyone had ever seen. but it turns out the real gold was in holiday displays, and for over 100 years, barrango has been manufacturing them and classic carosels, for retailers around the country and the world, from boston to burbank, from berlin to beijing. yes, they ship to china, but they don't make it there. >> we've had the opportunity to go to china, and have things manufactured, but we're a quality, hands-on family, company. and we need it to be in america in order to produce what we've got we can't just turn it over to production in another country. >> reporter: it is that quality first mantra? along with its global reach that squired barrango through the recent down turn, that and agility in the
market place using the internet as a sales tool and technology to drive new products. an american domestic manufacturer, embracing technology, selling globally, with quality at its core. ho, ho, ho. mike hegedus, nbr, south san francisco, california. >> reporter: next week, on "made in america": we go down on the farm to the petaluma creamery. while big corporate players dominate the dairy industry, this independent dairy farm has found a way to survive. that's nightly business report for thursday, may 10. i'm tom hudson. goodnight everyone... captioning sponsored by wpbt